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ck03
Returning Member

Rental depreciation for appliances and water heater bought when in personal use

I rented out my personal property in 2020 that I lived for 5 years. In those 5 years, I did install new appliances, water heater, and blinds.

 

$2500 - Kitchen appliances in May 2016

$1300 - Water heater in July 2017

$200 - Window Blinds in June 2019

 

How do I depreciate them? Do I enter separate line item for appliances (1 year left) and blinds (probably 4 years left) and depreciate them over 5 years? And separate line item for water heater and depreciate it over 27.5 years?

 

Or do I just add all this to the purchase price of the house (minus land value) and depreciate over 27.5 years?

 

Please advise as this is my first time doing rental property investment.

1 Best answer

Accepted Solutions
ToddL99
Employee Tax Expert

Rental depreciation for appliances and water heater bought when in personal use

Correct, you have to use the lesser of the two values - its adjusted basis or its fair market value at the time the property was placed in service for rental purposes.

 

In your case, use the adjusted basis -  the purchase price - land value + cost of appliances + cost of blinds + cost of water heater + any other improvements you might have made (not including repair and maintenance costs).

 

 

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3 Replies
ToddL99
Employee Tax Expert

Rental depreciation for appliances and water heater bought when in personal use

Since these items were purchased for personal use and before you converted the property into a rental, you won't be able to depreciate (or expense) their cost as part of your rental property.

 

The depreciable basis for the property would then be the lesser of either its adjusted basis or its fair market value at the time the property was placed in service for rental purposes. Whichever value applies would be depreciated over 27.5 years.

 

The adjusted basis would be the purchase price of the house plus any improvements you made; the appliances, the water heater and the blinds would qualify as improvements, 

ck03
Returning Member

Rental depreciation for appliances and water heater bought when in personal use

OK, thank you. So if I understand it correctly, you're saying to use the adjusted basis (house purchase price - land value + cost of appliances + cost of blinds + cost of water heater) and depreciate it over 27.5 years. As fair market value in 2020 has appreciated considerably since I purchased in 2015 and I have to use lesser of the two, per your statement.

ToddL99
Employee Tax Expert

Rental depreciation for appliances and water heater bought when in personal use

Correct, you have to use the lesser of the two values - its adjusted basis or its fair market value at the time the property was placed in service for rental purposes.

 

In your case, use the adjusted basis -  the purchase price - land value + cost of appliances + cost of blinds + cost of water heater + any other improvements you might have made (not including repair and maintenance costs).

 

 

View solution in original post

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